COMPETITION COMMISSION OF INDIA

Case No. 56 of 2012

In Re:

M/s Atos Worldline India Pvt. Ltd.

701, Interface 11, Malad (West), Mumbai - 400064

Informant

And

M/s Verifone India Sales Pvt. Ltd.

B 1, First Floor, Sector 4, Noida- 201301

Opposite Party No. 1

M/s Verifone System Inc.

2009 Gateway Place, Suite 600
San Jose, CA 95110, USA

Opposite Party No. 2

CORAM
Mr. Ashok Chawla
Chairperson
Mr. S. L. Bunker
Member
Mr. Sudhir Mital
Member
Mr. Augustine Peter
Member
Mr. U. C. Nahta
Member
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Appearances:

For the Informant: (i) Shri Suhail Nathani, Advocate

(ii) Shri Ravishekar Nair, Advocate
(iii) Shri Arjun Khera, Advocate
(iv) Shri Srijan Sinha, Advocate
(v) Shri Mehfuz Mullah, Advocate

For the Opposite Party: (i) Shri Ramji Srinivasan, Senior Advocate
(ii) Shri Naval Chopra, Advocate
(iii) Shri Abjeet Sinha, Advocate
(iv) Shri Ritwik Bhattacharya, Advocate
(v) Shri Dinoo Mutappa, Advocate
(vi) Shri Vinayak Prasad
(vii) Shri James
(viii) Shri Anil Gupta

Order under Section 27 of the Competition Act, 2002

The present information has been filed by M/s. Atos Worldline India Private
Limited (hereinafter, the Informant) under section 19(1)(a) of the
Competition Act, 2002 (hereinafter, the Act) against M/s. Verifone India
Sales Pvt. Ltd. (hereinafter, the Opposite Party No. 1/Verifone) and M/s.
Verifone System Inc. (hereinafter, the Opposite Party No. 2) [collectively
hereinafter, the Opposite Parties), inter alia, alleging contravention of the
provisions of section 4 of the Act.

1. Facts, in Brief

1.1 As per the information, the Informant, a company incorporated under the
Companies Act, 1956, is owned by Atos, a global information technology

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services company operating in the areas of hi-tech transactional services,

consulting and technology services and system integration and management
services. The Informant is stated to be engaged in the provision of services
such as software development including Value Added Services (hereinafter,
VAS), maintenance, implementation, upgradation, applications management
and infrastructure management. It delivers end-to-end service in industries of
public sector, healthcare, transport and financial services and also operates as
a third party processor (hereinafter, TPP). As a TPP, it tracks the flow of
intervening events between a card holder swiping his card and finally
receiving a printed charge slip at the Point of Sale (hereinafter, POS)
Terminals on the premises of a merchant from whom the card holder buys
products/ services. As a VAS provider, the Informant develops applications
such as loyalty, gift card, bill payment, top-up, money transfer, dynamic
currency conversion, etc. for integration into POS Terminals. The customers
of the Informant such as banks and financial institutions use its services for
customising, commissioning, installing and maintaining POS Terminals at
merchant locations.

1.2 The Opposite Party No. 1, a company incorporated under the Companies Act,
1956, is a wholly owned subsidiary of the Opposite Party No. 2 which is a
NASDAQ listed public company and a global leader in secure electronic
payment technologies for the provision of hardware solutions such as POS
Terminals, services and expertise to enable electronic payment transactions at
the POS Terminals.

1.3 As per the information, the Opposite Party No. 1 is a leading supplier of POS
Terminals in India having control over nearly 70% to 80% of the market. It
has acquired several other players in the POS Terminals market in India such
as Lipman Electronic India Private Limited in 2006, Hypercom India and
Gemalto in 2011.

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1.4 As per the Informant, the Opposite Party No. 1 supplies POS Terminals along
with core POS Terminal applications (i.e., Operating System and Kernels) and
Software Development Kits (hereinafter, SDKs) to enable the basic
functionality of the POS Terminals. It is submitted that POS Terminals along
with its core applications are either sold directly to the customers like banks
and retail outlets or to the TPPs such as the Informant who act on behalf of
acquiring banks and also render VAS to develop and integrate applications
into POS Terminals.

1.5 It is averred that for the provision of VAS, it is extremely important for the
Informant to have access to the core POS Terminal applications and their
crucial enhancements/updates along with SDKs. Withholding of such
enhancements/updates and SDKs by the POS Terminal manufacturers will
negatively impact the growth of the TPP and VAS markets. It is stated that, as
per standard industry practice, core POS Terminal applications and SDKs are
provided along with the POS Terminals and the costs of the same are built into
the price paid for the POS Terminals.

1.6 The Informant submitted that between September, 2010 and December 2011,
the Opposite Party No. 1 continued to provide SDKs to the Informant along
with the POS Terminals and core terminal applications without any
restrictions on the use of SDKs. The Opposite Party No. 1 also used to provide
training to the Informants engineers to enable the Informant to render VAS to
its customers.

1.7 The Informant stated that cost of core applications and SDKs were always
included in the purchase orders for the purchase of the POS Terminals. In
relation to enhancements and updates to core terminal applications, the
purchase orders contained clauses stipulating the terms and conditions. It is
stated that in practice such enhancements and updates were provided at no
extra cost, other than the price paid at the time of procurement of POS
Terminals.

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1.8 It is submitted that after acquisition of Venture Infotek by the Informant in

August, 2010, the Opposite Party No. 1 issued a termination letter to the
Informant in September, 2010 alleging breach of Source Code License
Agreement (hereinafter, SCLA) which was signed between them in July,
2009 for a particular model of a POS Terminal. As per the Informant, despite
issue of the said termination letter, the Opposite Party No. 1 continued to
supply POS Terminals along with its core applications, SDKs and training to
its engineers for the use of SDKs.

1.9 It is averred that, in January 2012, the Opposite Party No. 1 sent a proposed
draft SDK agreement to the Informant stating that the same is not open to any
negotiations, amendments or changes and that the Informant has to insert
certain details in the said draft SDK agreement and to counter-sign it. The
Informant has alleged that through the said draft SDK agreement the Opposite
Party No. 1 sought to impose certain restrictive conditions on it.

1.10 The Informant stated that the terms of the said draft SDK agreement and the
restrictions contained therein were a complete departure from the business
practice that had existed in the industry for several years. Moreover, no
legitimate business reasons were provided by the Opposite Party No. 1 to
carry out such drastic changes in the said draft SDK agreement. It is alleged
that the restrictions contained in the draft SDK agreement foreclose the VAS
market.

1.11 The Informant averred that since early January, 2012, the Opposite Party
No. 1 has adopted a very unreasonable position and there was an
unprecedented delay in the supply of kernels which caused heavy revenue
loss to it. It is alleged that between January, 2012 and July, 2012, the
Opposite Party No. 1 made repeated attempts to force the Informant to agree
to the terms and conditions as set out in the draft SDK agreement. Further,
the Opposite Party No. 1 issued several reminders to the Informant to
complete the formality of signing the draft SDK agreement, failing which

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the Opposite Party No. 1 threatened to withdraw the SDK support for the
Informants business. It is averred that the Informant was constrained to
issue several letters to the Opposite Party No. 1 highlighting the
unreasonable nature of the restrictions set out in the draft SDK agreement. It
is the case of the Informant that despite repeated attempts to engage in
constructive discussion with the Opposite Party No. 1 on the restrictive
conditions of the draft SDK agreement, it issued a termination letter dated
01.08.2012.

1.12 It is alleged in the information that the Opposite Party No. 1 over the past
few years also made in-roads into the VAS market and operates as a direct
competitor to the Informant and other entities operating in the VAS market.
It is alleged that on account of the Opposite Party No. 1s dominant position
in the POS Terminals market and its presence in the VAS market, it resorted
to the conduct and practices which directly impair not only the ability of
VAS providers from operating in the market but appropriate the Informants
IPR in the VAS market.

1.13 It is stated that at a global level the Informant and Verifone are competitors
in the provision of hardware and software solutions to the payment industry.
But, in India the Informant is operating in the TPP and VAS spheres only
whereas the Opposite Party No. 1 is not only dominant in the POS Terminals
market but also active in the VAS market where it primarily operates in the
non-financial applications and is now leveraging its strength to compete in
the financial services market.
1.14 Citing Reserve Bank of Indias Payment System Vision Document, 201215, the Informant stated that in the POS Terminal manufacturing industry in
India, Verifone and Ingenico are the two prominent players. By virtue of
being almost an exclusive supplier of POS Terminals in India, the Opposite
Party No. 1 exercises significant control over the supply of hardware and
software solutions.

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1.15 The Informant has also stated that there appears to be no objective
justification for imposing unreasonable and unfair terms in the draft SDK
agreement. These terms would effectively eliminate the Informant from the
downstream market and would support the Opposite Party No. 1s interests
by eliminating competition in the market. The Informant has alleged that
Opposite Party No. 1, by imposing restrictions in the draft SDK agreement, is
aiming to strengthen its position in the VAS market.

1.16 Based on the above submissions, the Informant has alleged that the Opposite
Party No. 1, through the 2012 draft SDK agreement, has sought to impose
unfair and unreasonable conditions and prices on the Informant which is in
contravention of 4(2)(a)(i) & (ii) of the Act. As per the Informant, the
Opposite Party No. 1 by imposing severely restrictive terms and conditions
on the usage of SDKs and by demanding payment of unfair prices for
provision of service has sought to limit and restrict provision of services and
technical development in the market which is in contravention of section
4(2)(b)(i) & (ii) of the Act. It is also alleged that the Opposite Party No. 1 has
sought to deny market access to VAS providers in contravention of section
4(2)(c) of the Act. Further, the Opposite Party No. 1 allegedly intended to use
its dominant position in POS Terminal market to dominate VAS market in
contravention of section 4(2)(e) of the Act.

1.17 Based on above submissions, the Informant, inter-alia, prayed to the

Commission to direct the Opposite Party No. 1 to cease and desist from
indulging in abusive conduct; discontinue from imposing unfair, restrictive
and discriminatory conditions in relation to use of SDKs and enhancements
to core applications; not to give effect to the 2012 Termination Letter; impose
appropriate penalty on the Opposite Party No. 1 for abuse of dominant
position and grant such other reliefs as the Commission may deem
appropriate in the facts and circumstances of the case.

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2. The Commission after giving thoughtful consideration to the facts of the case
found that, prima facie, the conduct of the Opposite Party No. 1 was in
violation of the provisions of section 4 of the Act. Accordingly, vide its order
dated 31.12.2012, under section 26(1) of the Act, the Commission directed the
Director General (hereinafter, DG) to conduct an investigation into the
matter.

3. Brief of the DGs Investigation

3.1 The DG submitted his investigation report to the Commission on 20.03.2014.

3.2 Pursuant to the directions of the Commission, the DG has essentially

investigated the alleged infraction of the provisions of section 4 of the Act i.e.,
abuse of dominant position by the Opposite Party No. 1.
3.3 For the purpose of investigation, the DG has considered the market for POS
Terminals as the relevant product market. As per the DG report, there are no
reasonable alternative/substitutable devices available in the market to which
merchants can switch over in place of POS Terminals. It is reported that new
technologies such as Easytap, MSwipe etc., cannot be considered as a
substitute of the POS Terminals. Moreover, the demand side substitutability of
POS Terminals does not exist. The DG has considered the territory of India as
the relevant geographic market because POS Terminals are capable of being
traded throughout India with almost similar conditions. Thus, the market for
POS Terminals in India has been considered as the relevant market by the DG
in the instant case.

3.4 To ascertain the position of dominance of the Opposite Party No. 1, the DG
has analysed the factors mentioned under section 19(4) of the Act and
concluded that the Opposite Party No. 1 is a dominant enterprise in the
relevant market defined supra. It is reported that during the period of
investigation i.e., from 2009-10 to the date of filing information in 2012, there

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were mainly two players in the relevant market i.e., the Opposite Party No. 1
and Ingenico, and the market share of the Opposite Party No. 1 was much
higher compared to Ingenico in terms of numbers of POS Terminals sold to
the customers. DG has reported that in terms of size and resources, sales data,
number of terminals operational in the country and the network, etc., the
Opposite Party No. 1 has a clear advantage over its competitors and the
consumers are dependent on it. Also, the Opposite Party No. 1 can operate
independently of competitive forces and affect the market in its favour
because of its wide presence and large share in the POS Terminals market.

3.5 On the alleged abusive conduct of the Opposite Party No. 1, the DG has found
that the clauses of the SDK license agreements are unfair. The DG noted that
the Purpose Clause under which the licensee can develop VAS and use the
same only on the licensors products and the restrictive clauses prohibiting
TPP to assist or develop the applications were found to be in violation of
section 4(2)(a)(i), 4(2)(b)(i), 4(2)(b)(ii) and 4(2)(e) of the Act. The DG
reported that the claim of the Opposite Party No. 1 that the restrictive clauses
of the SDK agreement are meant for the purpose of protecting its IPRs was
found to be untenable and none of the other POS Terminals vendors have
incorporated such restrictive clauses in their SDK agreement. The DG found
that the clauses of SDK agreement are limiting and restricting the technical or
scientific development relating to the prejudice of consumers. The DG noted
that the intent of the restrictive clauses in regard to licensing, selling or
otherwise transferring any software that licensee develops was to not allow
them its further use. Thus, the DG observed that in the name of IPR safety the
Opposite Party No. 1 was restricting the VAS developer to exploit the same.
Further, the DG noted that by imposing the condition of disclosing the
software, the Opposite Party No. 1 gets access to the commercial rights of the
developer without any obligation. The DG noted that VAS providers cannot be
forced to pre intimate the details of the products they are developing to the
Opposite Party No. 1.

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3.6 The DG also identified the key officials of the Opposite Party No. 1 who were
responsible for the said anti-competitive conduct for the purpose of individual
liability under section 48 of the Act.

4. Replies/objections of the Opposite Party No. 1 in response to the DG

Report

4.1 The Opposite Party No. 1 has submitted that the findings of the DG are false,
baseless and deserve to be dismissed outright for want of evidence and nonapplication of mind. It has been submitted that the DG has arrived at the
conclusions with only a cursory analysis of the evidence and issues at hand, a
selective reliance/cherry picking of statements made by few interested parties
and that the report contains several methodological, procedural and analytical
errors and inconsistencies, including findings contrary to the records of the
case.

4.2 The Opposite Party No. 1 has submitted that the Informant has deliberately
avoided any meaningful or constructive dialogue with it on the terms of any
potential licensing arrangement and has intentionally sought to delay the
execution of an SDK license agreement, despite the Opposite Party No. 1
meeting almost all of the Informants claims.
4.3 It has been submitted that the case appears to be motivated by the Informants
desire to replace the Opposite Party No. 1 as a popular vendor of POS
Terminals to banks in India. Further, the Informant through its sister company
Banksys International is already selling POS Terminals around the world and
it is understood that the Informant has already started selling Mobile POS
(hereinafter, MPOS) Terminals in India. It is also submitted that as banks
heavily rely on the Informant for providing backend processing and
maintenance services, the Informant enjoys a unique position in the electronic
payment market.

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4.4 The Opposite Party No. 1 has submitted that the DG had contacted various
third parties such as banks and VAS providers and specific query had been
posed whether they had come across any abusive conduct by a POS vendor. In
response, all the major banks such as SBI and HDFC have stated that they had
not come across any abusive conduct by POS vendors in the market. Further,
all major VAS providers such as Prizim Payments Services Private Limited,
Tarang Software Technologies Limited, Innoviti Embedded Solutions Private
Limited and ICICI Merchant Services Private Limited had unanimously stated
that they had not come across any anti-competitive conduct by POS Terminal
providers.

4.5 As per the Opposite Party No. 1, the subject matter forming the basis of this
information is a draft SDK agreement circulated by it to the Informant for
negotiation. This draft SDK agreement was initially circulated post
infringement of its intellectual property right by the Informant and MRL
Posnet. It is submitted that immediately prior to the filing of information, the
Opposite Party No. 1 was about to close negotiations over the SDK license
agreement with the Informant agreeing to nearly all its demands. However, the
Informant preferred filing the information.
4.6 The Opposite Party No. 1 has submitted that the DGs analysis and the finding
that the relevant market is limited to POS Terminals is misconceived, flawed
and contradictory to the actual market realities of the electronic payment
industry. The DG has altogether failed to apply section 2(r) of the Act while
delineating the relevant market in the case. In addition to disregarding the
basic requisites of defining the relevant market under the provisions of the
Act, the DG has disregarded and failed to examine the inherent substitutability
between different technologies in the electronic payment industry that act as
substitutes to POS Terminals.

4.7 The Opposite Party No. 1 has submitted that the DG has failed to take into
account the new products being developed and deployed in this sector on

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account of the technology driven nature of the industry. It is submitted that

the electronic payment industry as a whole is witnessing rapid technological
change and progress. Relying upon a RBI publication, it is stated that the
payment system initiatives taken over the last three years viz. from 2009 to
2012 have resulted in deeper acceptance and penetration of modern electronic
payment systems in the country. The electronic payment industry is rapidly
growing in India with various modes of electronic payment emerging and
constraining the sales of POS Terminals. The Opposite Party No. 1 has relied
upon the M/s Pricewaterhouse Coopers (hereinafter, PwC) Report on
Electronic Payment Market in India which states that technology
advancements have given rise to a new platform of POS Terminals referred to
as MPOS, which has opened an affordable channel for merchants of all sizes.
It requires less upfront investment and its maintenance is more economical
than POS Terminals.

4.8 The Opposite Party No. 1 has submitted that MPOS are severely constraining
and acting as an effective substitute to POS Terminals. MPOS devices
include Ezetaps Mobile solutions card reader, MSwipes USB/dongle mobile
Point of Sale, and MobiSwipe products. The Opposite Party No. 1 has
submitted that MSwipe is adding around 1500 merchants per month and is
planning to reach 50,000 merchants by the end of 2014. It has also been
submitted that SBI has recently teamed up with Ezetap to set up 5, 00,000
MPOS Terminals over the next five years.

4.9 The Opposite Party No. 1 has submitted that First Data, a sister entity of ICICI
Bank Merchant Services Limited, plans to aggressively market its new
product to a large number of merchants across India including retailers and eretailers, radio taxis, etc. and it has over 2 lakh customers in India and the
survey showed that around 39 percent of the merchants are willing to adopt
this product.

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4.10 As per the Opposite Party No. 1, MPOS are easier to use and more cost
effective and fast replacing the POS Terminals. Further, in India acquirer
banks are continuously seeking ways to migrate to cheaper modes of
transacting e-payment systems. These new technologies which can be
attached to mobile phones to process transactions not only result in upfront
investment by the bank but also reduce the monthly maintenance expense of
the banks. Such devices perform comparable functions with a POS Terminal
and provide the same end use i.e., facilitation of electronic payment. Further,
MPOS are Europay, Mastercard and Visa (hereinafter, EMV) Level 2
certified so they have the ability to process debit/credit cards and process
electronic payments just like POS Terminals.

4.11 In addition to MPOS, there are other technologies such as mobile wallets and
pre-paid instruments that severely constrain the POS Terminal sales and are
substitutable to POS Terminals. As per the Opposite Party No. 1, the DG has
grossly erred by not accurately examining these technologies. It is submitted
that since the electronic payment industry is highly technology driven, the
relevant product market definition must be broad enough to include new and
innovative products which compete and constrain the sales of POS
Terminals.

4.12 It has been submitted that both POS Terminals and other POS devices
including MPOS such as Ezetap and Mswipe achieve the same end result i.e.,
the processing of electronic payment transactions. Banks and merchants who
wish to obtain a device for processing a credit/debit card are equally able to
choose between a POS Terminals and other POS devices that process
electronic payments. Further, the consumers prefer these emerging
technologies over POS Terminals due to cost effectiveness and relative ease
in use. Thus, as per the Opposite Party No. 1, all such devices are
interchangeable and substitutable with each other and therefore are part of the
same relevant market. Accordingly, the relevant market to be considered in
this case should be the market for electronic payment devices

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4.13 As regards the relevant geographic market, the Opposite Party No. 1 has
submitted that the relevant geographic market definition of India as set out
in the DG report may be accepted but such relevant market should also
include imports of electronic payment devices, including POS Terminals into
the country.
4.14 It is submitted that the DGs finding that Verifone holds a dominant position
in the POS market has no basis and DG has disregarded the basic tests of
dominance contained in Explanation (a) to section 4 of the Act. Further, the
determination of market shares by the DG is flawed and contradictory to the
data contained in various market study reports.

4.15 The Opposite Party No. 1 has submitted that, given the number of competing
devices and players, it cannot be in a dominant position in the relevant
market. Without prejudice to the submissions on the correct relevant market
definition, even in the narrower relevant market defined by the DG i.e.,
market for POS Terminals in India, the Opposite Party No. 1 is not a
dominant player. It is submitted that Ingenico holds a higher market share
than Verifone in the POS Terminals market and the market share of Verifone
is further declining which shows that it does not have position of strength to
act independently of competitors, consumers or the market.

4.16 As per Opposite Party No. 1, section 19(4) is not a standalone provision; it
has to be seen contextually as an aid to section 4. This has been affirmed by
the COMPAT in the case of National Stock Exchange vs. Competition
Commission of India wherein the Honble COMPAT observed that Shri
Sibal is undoubtedly right when he argues that while applying the factors
listed in section 19(4) of the Act, a check the box approach should not be
followed and the factors in that section should only be considered as an aid in
assessing dominance. Thus, even if an enterprise is a leader in terms of
factors set out under section 19(4) of the Act, such an enterprise can be
considered as dominant only if these factors confer upon the enterprise a

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position of strength in the relevant market which enable it to operate

independently or affect competitors or consumers or the relevant market in its
favour. It has been submitted that the DG failed to analyse the POS Terminals
market and various competitive constraints exercised on the Opposite Party
No. 1 which demonstrate that it is unable to operate independently of
competitive forces or affect competitors or consumers or the relevant market
in its favour. The Opposite Party No. 1 has submitted that the POS Terminals
market is highly competitive and the players in the industry (including
customers of the Opposite Party No. 1, whether banks, TPPs or VAS
providers) substantially constrain the Opposite Party No. 1s activities.
4.17 It is submitted that the POS Terminals market is a buyers market with
customers especially banks dictating the terms and conditions. As per the
Opposite Party No. 1, banks considerably constrain its operations as they are
the primary customers. In fact, banks adopt a (minimum of) two-vendor
policy and source their requirements from more than one POS Terminal
supplier in India and are well aware of the other available alternatives.

4.18 As per the Opposite Party No. 1, the banks have the ability to choose its
competitors over it and therefore, are free to shift their purchases to
competitors. The Opposite Party No. 1 has also submitted that its commercial
operations are highly dependent on third party processors such as the
Informant.
4.19 It has been submitted that the Informant mandates various specification
requirements which include a variety of functionalities that must be adhered
to, apart from just the certification of the core payment applications. If a POS
Terminal is not certified by the Informant, banks refuse to place orders for it.
The Informants White Paper on Certification of Terminal Applications
explicitly states banks shall only deploy/advise to deploy those terminals
whose applications have been credited by Venture Infotek. Banks shall
advise any prospective terminal before deployment (emphasis added). The

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paper also states terminal Vendors shall comply with the testing and
certification process of Venture Infotek (emphasis added). As per the
Opposite Party No. 1, the Informant charges a significant amount of
approximately Rs. 8, 00,000 as fees for certifying payment applications on its
terminals whereas no other TPP in India charges such exorbitant certification
fees.

4.20 It has been submitted that the Informant is also operational in the POS
Terminals market globally under the brand name Banksys and can easily
customize these terminals to meet Indian market requirements and align them
to the standards in India. This is evidenced by the fact that the Informant has
also started to service the MPOS segment of the market and further may
launch its own terminals in India.

4.21 The Opposite Party No. 1 has submitted that the Informant, in its White Paper
on Certification of Terminal Applications states Venture Infotek provides
the ubiquitous infrastructure for POS Terminals and payment card
transactions to be processed to over 15 acquiring banks in India. In fact, the
Informant is the only TPP in India which mandates that it will be the
exclusive TPP to acquiring banks, demonstrating Informants significance as
a TPP to banks and its dominant position of strength as a TPP in India. The
ability of the Informant, as a dominant TPP service provider, does not allow
the Opposite Party No. 1 to affect its competitors or operate independently
of market forces.

4.22 As per the Opposite Party No. 1, it is significantly constrained by various

players including its customers. The players in this industry such as Indigo
and the Future Group, and banks such as Axis bank, HDFC bank, SBI are
much larger than it and can exercise significant countervailing buyer power
on it in the POS Terminals market.

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4.23 It is submitted that the Opposite Party No. 1 does not hold highest market
share rather, Ingenico holds the highest market share in the POS Terminal
market in India. In support of its lower market share, the Opposite Party No.
1 cited the DG report which states that if we take only the share of Opposite
Party No. 1 and exclude the machines sold by Gemalto (acquired by Opposite
Party No. 1 in 2011) the market share of Opposite Party No. 1 is about 45%
as it had sold about 2.8 lacs terminals by 31-03-2012 (emphasis added).
This calculation of market share has been arrived at by collating the sales of
POS Terminals by the Opposite Party No. 1 for the last three years and
without aggregating the sales of its acquired companies in previous years.

4.24 The Opposite Party No. 1 has submitted that the POS Terminals it acquired
from Lipman in 2006-2007, Gemalto in 2011 and Hypercom in 2012
(hereinafter, Legacy Terminals) are near obsolete and the acquired POS
Terminals have not raised its sales rather facilitated additional opportunities
for its competitors. It is submitted that since the acquired POS Terminals do
not provide any commercial advantage, either at present or in the future, such
terminals should not be included while computing the market share of the
Opposite Party No. 1.
4.25 Further, as a result of the new RBI guidelines, legacy terminals are rendered
redundant because of requirement of a PIN at the time of swiping a
debit/credit card on a POS Terminal. Since banks have sought to replace
many POS Terminals with GPRS enabled terminals, it renders legacy
terminals useless. The DG has failed to examine this aspect.

4.26 The Opposite Party No. 1 has submitted that, in the light of above, a more
accurate estimate of its market share would be approximately 45% (and it is
further declining) as opposed to 70% to 80% alleged by the Informant. It is
submitted that a market share of 45% cannot, in itself, lead to a conclusion
that the Opposite Party No. 1 holds a dominant position especially, when one
of its competitors has a higher market share.

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4.27 As per the Opposite Party No. 1, its competitor Linkwell Telesystems Pvt.
Ltd. in its response to the DG date 25 October 2013, has submitted that
[t]here are a number of POS machine vendors in India such as Verfione,
Ingenico, Gemalto, Sagem, PAX, MPOS, Specra Tech, Exadigm, who import
their machines into India. Among the local vendors are Geodesic, Evolute,
Analogics, Sands, Balaji, Quantum, MicroFX, Palmtech, Smartlans, etc.
There are a number of small regional vendors as well. The DG however has
failed to obtain the number of POS Terminals sold by these players and has
failed to include such players in market share analysis.

4.28 It is submitted that the Commission has recognised that falling market share
is an indication that the enterprise is not in a dominant position in the relevant
market in the case of M/s. HNG Float Glass Ltd. vs. M/s. Saint Gobain Glass
India Ltd. where the Commission held that the erosion of market shares for
established players like SGGIL, AIS point out the competitive constraints
exercised by a new firm on the old experienced firms. Further, in the case of
Hoffman La Roche V. Commission, the ECJ held that [a]n undertaking
which has a very large market share and holds it for some time, by means of
the volume of production and the scale of the supply which it stands for.is
by virtue of that share in a position of strength(emphasis added). This is
also recognized by the OECD report which states , [t]o distinguish between
instances of normal, everyday non-substantial market power and the type
of market power that should trigger heightened scrutiny under single-firm
conduct provisions, it is important to determine whether market power is
durable i.e., whether it can be maintained for a considerable period of
time(emphasis added).
4.29 In this regard, it is submitted that the Opposite Party No. 1s revenues and
profits have been facing a steady decline over the last year. Its profits which
were Rs. 6.9 crore in financial year 2011-12, were reduced to a mere Rs.
65.75 lakhs in financial year 2012-13. Further, in financial year 2011-12 the
Opposite Party No. 1s revenues were Rs. 118.15 crore and were reduced

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significantly to Rs. 96.57 crore in the financial year 2012-13. Further, its
market shares have also fallen from 57% to 43% in the past 5 years. It is
submitted that significant drop in revenues, profits and market share indicate
that the Opposite Party No. 1 does not hold any dominant position in the
relevant market.

4.30 It is submitted that the DG has wrongly compared the data relating to POS
Terminals sold to the banks by the Opposite Party No. 1 and Ingenico. It is
stated that the DG has not taken into account the POS Terminals acquired by
SBI. It is stated that SBI has purchased 67,000 terminals from Ingenico as
compared to only 2000 terminals and 4000 PIN pads from the Opposite Party
No. 1. In choosing to analyse the sales figures of only the largest three POS
Terminal acquiring banks, the DG has failed to account for POS Terminals
purchased by all other banks in India such as IDBI bank which has 14,844
POS Terminals, Corporation bank which has 14063 POS Terminals,
American Express Banking Company which has 17652 POS Terminals,
Citibank which has 9800 POS Terminals, etc.
4.31 It is further submitted that the DG has failed to account for Linkwells sales
of POS Terminals in India. Linkwell has sold a total of 78,860 POS
Terminals over last three years. It is submitted that the market share of the
Opposite Party No. 1 in the POS Terminals market clearly indicates that it
does not enjoy a dominant position. Ingenico is the market leader with a
market share of 54% whilst the Opposite Party No. 1s market share has
fallen by 14%.

4.32 Further, it is submitted that the DG has also failed to effectively examine the
competitive strength enjoyed by the competitors of the Opposite Party No. 1
which are large multi-national corporations such as Ingenico and PAX and
local players such as Linkwell or Visiontek and Advanced Micronic Devices
Ltd. (AMDL).Threat of new entry from globally established POS Terminal

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suppliers also prevents the Opposite Party No. 1 from operating

independently of competitive forces prevailing in the relevant market.
4.33 It is submitted that Ingenico is the worlds largest supplier of POS Terminals
and it holds No. 1 position in Asia. In April 2014, Ingenico was adjudged as
the highest ranking POS Terminal vendor globally by ABI Researchs POS
Terminal Vendor Competitive Assessment. This leading position is also
corroborated by the Nilson Report (a leading publication covering payment
system worldwide and it provides up-to-date information on companies,
products, and services from all areas of the payments industry infrastructure)
on POS Terminal shipments in 2011.

4.34 Citing PwC Report, it is submitted that Ingenico is the largest player in India.
Ingenico has deployed approximately 300,000 POS Terminals across six
hundred cities, village and metros in India and it claims to be selling 20,000
POS Terminals every month and has expanded its presence by providing
MPOS and online payment gateways as well. According to financial
statement of Ingenico filed with the Ministry of Corporate Affairs, its sales in
India since its incorporation have increased nearly by 10 fold i.e., from Rs.
81.83 million in the financial year 2009 to Rs. 799.93 million in the financial
year 2013.

4.35 As per the Opposite Party No. 1, given the global presence, size and
importance of competitors, including potential competitors such as the
Informant, it cannot be said to hold a dominant position in the POS Terminals
market in India. As per the Opposite Party No. 1, it is not dominant in any
market relevant to this case, including the relevant market defined by the DG
thus, it cannot be found to have abused its dominant position.
4.36 The Opposite Party No. 1 has submitted that DGs conclusion on its abusive
conduct is not reflected by any actual anti-competitive effects. Though DG
has received the details of VAS provided by the Informant and FSS and VAS

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revenues of the Informant, the DG has failed to examine whether their

statements on the Opposite Party No. 1s abusive conduct is true and actually
reflected in falling VAS revenues of these companies or by any other anticompetitive effects whatsoever.

4.37 It is submitted that DG has found that the Opposite Party No. 1 has violated
the provisions of section 4 of the Act on the basis of a draft SDK agreement
which has not been executed or implemented. As per the Opposite Party No.
1, the DG has completely failed to consider that presently there cannot be
imposition of any unfair term or condition on the Informant and accordingly
there is no breach of section 4(2)(a)(i) of the Act. The DG has also failed to
give evidence of any actual foreclosure or anti-competitive effect caused by
the Opposite Party No. 1s conduct. Thus, the DGs conclusions of abuse are
mere subjective statements which fail to correlate with any market reality.

4.38 It is submitted that based on a bald comparison of selectively compared

clauses from other SDK license agreements to the clauses contained in
Verifones 2012 draft SDK license agreement such as Purpose Clause and
restriction of development of VAS on managed Terminals; restriction on
development of payment applications; restriction on sub-licensing or
appointing third-parties for development of VAS; restriction relating to
disclosure of VAS to be created or intended to be created; and restriction on
the commercial exploitation of VAS the DG concludes that the 2012 draft
SDK license agreement was not in line with prevailing industry practices in
the Indian and global POS Terminals market.
4.39 The Opposite Party No. 1 has submitted that DGs findings ought to be
rejected outright as it failed to appreciate the different business models
adopted by different POS Terminal suppliers and has also completely
misrepresented certain SDK license agreements evaluated. The Opposite
Party No. 1 has stated that a bald comparison of clauses set out in a draft
agreement, being negotiated between parties, both prior to and after the filing

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of the information, cannot amount to the imposition of any unfair term or

conditions and cannot amount to abuse of dominance in violation of section 4
of the Act.
4.40 It has been submitted that 2012 draft SDK license agreement imposes far less
stringent terms and conditions when compared to SDK license agreements in
the smart phone industry. Clauses under the 2012 draft SDK license
agreement cannot be said to be restrictive as it is standard business practice.
4.41 As regards the Purpose Clause, the Opposite Party No. 1 has submitted that
the DG has merely looked at the language, without analysing its effects and
implications. It is submitted that the Opposite Party No. 1s position has
always been to permit VAS development on managed terminals, subject to a
prior disclosure and permission requirement. That there is no evidence to
show that the Opposite Party No. 1 has unreasonably withheld permission
from allowing the Informant or other VAS providers from developing VAS
applications on managed terminals. It is stated that Verifone does not
unreasonably restrict the development of VAS on managed terminals.

4.42 It has been submitted that the Opposite Party No. 1 permits development of
VAS on managed terminals and the same is evidenced by the fact that
numerous VAS applications such as DCC, PUNGRAIN, Asian Paints
Loyalty etc. have been developed on the Opposite Party No. 1s managed
terminals in the past. Where a VAS provider wishes to develop VAS on
managed terminals, the permission and disclosure requirement is effected
merely by way of updating Exhibit C of the 2012 draft SDK license
agreement.

4.43 The Opposite Party No. 1 has submitted that this minimal disclosure cannot
amount to an abuse of dominance. The Opposite Party No. 1s terminals have
been purchased by customers such as the Future Group and the Opposite
Party No. 1 is liable under warranty to its customers for the POS Terminals
purchased from it. Given the immense risk that the Opposite Party No. 1
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incurs in the provision of warranty services to its customers, the Opposite

Party No. 1 requires a simple list of the customer, the name of the VAS and
the terminal models on which the VAS functions under Exhibit C.

4.44 In cases of VAS applications developed on managed terminals, the Opposite

Party No. 1 remains liable under warranty to its customers. The 2012 draft
SDK license agreement provides such a mechanism. This had been submitted
to the DG who has completely failed to acknowledge or even address any of
its submission. The Opposite Party No. 1 has submitted that a mere
permission and limited disclosure requirement is not a restriction, and the
DG has failed to provide even a single instance where it has refused to
provide such permission.
4.45 The Opposite Party No. 1 has objected the DGs finding that once a terminal
is sold, customers cannot be restricted to develop any new application to
enhance the utility of POS Terminals and payment applications are required
to be modified/upgraded or developed as per the needs of buyers. It is
submitted that the DG has absolutely failed to understand the basic
functioning of a POS Terminal, including the operation of payment
application.

4.46 It is also submitted that a POS Terminal is sold with its hardware (POS
Terminal) and software (POS application) which processes the electronic
payment. Sans a payment application, a POS Terminal is of no or little utility
and would be simply empty shell. A POS Terminal can be compared to a
Blackberry mobile phone where the phone hardware and the operating system
are essentially one product.

4.47 It is submitted that the DG has fundamentally failed to comprehend what a

payment application is and has not understood its primacy to the functioning
of a POS Terminal. Given that a functional POS Terminal is provided by the
Opposite Party No. 1, any modifications/ upgrades can only be provided by

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it. Since the payment application is already functioning on a POS Terminal,

there is no question of any new application for processing payments on the
terminal.

4.48 The Opposite Party No. 1 has submitted that the market itself demands a
device that facilitates electronic payment which is catered to by a POS
Terminal with a functioning payment application. The Opposite Party No. 1
therefore adopts a business model that caters to what the market and
customers demand. The DG however, without any analysis of market
functioning or responses of banks, has concluded that Opposite Party No.1
had not disclosed its terms and conditions of SDK license agreement to the
buyers at the time of sales of POS Terminals. Thus, the buyers who
purchased huge number of terminals were clearly under the impression that
the SDK shall be provided as per the industry practices. This stands in stark
contrast to its submission above that banks/customers themselves demand for
a POS Terminal along with a payment application. The demand for POS
Terminals in India is of a functional product that processes electronic
payment and the Opposite Party No. 1 is engaged in the sale of such a
functional electronic payment device.

4.49 Further, it is submitted that since this industry involves payments, potential
faults may have catastrophic effects. Therefore, in order to ensure that
electronic operations of banks/merchants function smoothly and also to
protect its reputation. Given the immense risk of potential fraud and misuse
in the electronic payment industry in India, it is absolutely necessary that
payment applications are developed, installed and tested by the Opposite
Party No. 1.
4.50 It is submitted that the Opposite Party No. 1s business model in India is not
comparable to SDL licensing arrangements in other parts of the world and
cannot be compared to the Opposite Party No. 2s and Banksys application
development agreements around the world. The security and safety concerns

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surrounding the electronic payment industry in India are significantly higher

as compared to mature jurisdictions overseas. The Opposite Party No. 1 has
submitted that the DGs simplistic comparison of payment application
development globally to that in India, without assessing the safety and
security concerns of electronic payments in India, should be rejected.
4.51 As per the Opposite Party No. 1, modification/developments cannot be made
to the core functionality of devices and the same is evident from the SDK
license agreements for smart phones which show that app developers are
not permitted to tamper with the calling, emailing, or other mobile
communication services. These agreements do not permit app developers to
develop/modify the core functions of email and phone functionality.
4.52 It is submitted that the DG has compared Ingenicos SDK license agreement
to the 2012 SDK license agreement of the Opposite Party No. 1 and finds that
Ingenico permits third party development of payment application and none of
the other players are imposing such restrictions. However, the DG has failed
to observe that Ingenicos SDK license agreement and 2012 draft SDK
license agreement operate on completely different business models.

4.53 The Opposite Party No. 1 submitted that a consumer is at liberty to choose
POS Terminals from any of the players and is not constrained in any way. If a
customer does not wish to procure the Opposite Party No. 1s terminals as it
does not like Opposite Party No. 1s business model, it can purchase from
Ingenico, PAX etc. Further, it is stated that the Opposite Party No. 1 does not
sub-contract the payment application development to other third-parties like
Ingenico or third-party payment application development because if there is
any fault in the payment application resulting in a merchant not being able to
process transactions or processing a transaction incorrectly, this would
adversely impact its business and reputation. Accordingly, the 2012 draft
SDK license agreement does not allow a third-party to write the payment
application for its POS Terminals. In this regard, the Opposite Party No. 1

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submitted that, a company, as a matter of right should be free to adopt any

business model of its choice.

4.54 It has been submitted that the SDK, the underlying software, the source code,
etc., are the IPR of the Opposite Party No. 1. Restriction on sub-licensing to
third parties in a license agreement cannot be considered unreasonable,
since the very essence of an IP right is the right to determine to whom the IP
and the manner in which it is licensed. In cases of third party use of its IP, the
Opposite Party No. 1 requires such third party to enter into an SDK license
agreement with it since, if a third party were to steal/misappropriate its IP, the
Opposite Party No. 1 would have no recourse to contractually enforce its IP
rights over the third party or cure the breach. Only if there is an executed
SDK license agreement between the Opposite Party No. 1 and the third party,
the Opposite Party No. 1 would be able to directly enforce its IP rights
vesting in its SDK.

4.55 It has been submitted that the Opposite Party No. 1 has not imposed any
restrictions, its conduct has not constrained its customers or competitors in
any manner and it has acted in a reasonable and responsible manner. The DG
has merely found that a third-party would not be able to develop VAS on
Managed terminals (under the Purpose Clause) and has held that this
prevents POS Terminal customers from outsourcing or engaging third-parties
for VAS development. This conclusion is not supported by any evidence. The
Opposite Party No. 1 does not unreasonably withhold third-party access to its
SDK, as is evident in the case of FSS. FSS was supplied with the Opposite
Party No. 1s SDK, despite FSS not having purchased any POS Terminals
with the Opposite Party No. 1. The Opposite Party No. 1 provided its SDK to
FSS and also provided training on its SDK to FSS in July 2011.

4.56 As per the Opposite Party No. 1, the DGs conclusion that Ingenico permits
third-party for development of applications on its SDK is incorrect, because
Ingenicos SDK license agreement provides that third party allowed if

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nominated by contractor and accepted by Ingenico. Thus, Ingenicos SDK

license agreement envisages a prior permission requirement. Further, the DG
has also failed to note that the purpose clause of the Opposite Party No. 2s
MX9 DTK agreement provides [s]ubject to the terms of this agreement, for
each license purchase by you, you are granted a limited, non-exclusive,
revocable, non-sub-licensable and non-transferable license to install and use
the MX9 DTK within the territory on a single computer for use by a single
user...(emphasis added). On a review of the MX9 DTK agreement, it is
revealed that Clause 3(c)(iv) does not permit a licensee to disclose to any
third party or permit any third party to have access to, use, execute, alter,
modify, customize or improve the MX9 DTK, or any part thereof, or any
alteration, modification, customization or improvement of the MX9 DTK
(including any Integrated Software). Accordingly, the DGs conclusion that
other POS Terminal vendors allow sub-licensing is flawed and is liable to be
rejected.
4.57 It is submitted that the DGs comparison of the SDK license agreements of
other suppliers to the 2012 draft SDK license agreement is a cursory analysis
of the issues at hand, ignores material and relevant evidence on record
including the SDK license terms of other POS vendors and deserves to be
rejected. It is also submitted that a review of SDK license agreements in other
industries such as smartphones demonstrate that similar SDK agreements
contain the same restrictions on sub-licensing or impose restrictions on sublicensors.

4.58 It is submitted that the Opposite Party No. 1 does not restrict third-parties
from using the SDK. Any third-party is free to develop VAS using the SDK
upon the execution of an SDK license agreement with the Opposite Party No.
1. Further, a restriction on sub-licensing to third-parties cannot be considered
unreasonable since the very essence of an IP right is the right to determine to
whom the IP and the manner in which it is licensed. In the absence of an
executed SDK license agreement between the Opposite Party No. 1 and such

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third-parties, the Opposite Party No. 1 would be unable to directly enforce its
IP rights vesting in its SDK and would be unable to directly govern/prevent
misuse. Accordingly, it is submitted that the restriction on permitting thirdparties from using the SDK contained in the 2012 draft SDK license
agreement is not abusive and does not amount to a violation of section 4 of
the Act.

4.59 As per the Opposite Party No. 1, information required to be disclosed by the
Informant under the draft SDK license agreement does not extend to any
commercially sensitive information. The DGs conclusion in this regard is
premature and has been reached without taking into account the limited
nature of the information that is required to be disclosed under Exhibit C.
Exhibit C under the 2012 draft SDK license agreement does not require any
confidential, commercially sensitive information or IP rights of the
developer. The only information required under the 2012 draft SDK license
agreement is disclosure on (a) terminal numbers; (b) name of the customers;
and (c) name of the VAS. It is submitted that both the Informant and the DG
have failed to provide a single instance where the Opposite Party No. 1 has
used information provided under Exhibit C to further its own VAS business
or has developed competing VAS by using the information provided by SDK
licensees.
4.60 It is submitted that the limited disclosure requirement under Exhibit C of
the 2012 draft SDK license agreement has always been to ensure the smooth
functioning of a POS Terminal, including the VAS that operates on the
terminal. The only reason behind this is to ensure that the POS Terminal can
function seamlessly with the VAS applications created/intended to be created
on terminals. If a terminal malfunctions, the Opposite Party No. 1 is entitled
to be aware of whether such fault is attributable to VAS applications
developed by VAS providers.

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4.61 The Opposite Party No. 1 has stated that preventing VAS developers from
licensing, selling or otherwise transferring any software does not amount to
restricting the commercial exploitation of VAS that is developed by a VAS
provider. This is because SDK licensees are free to develop VAS on all its
POS Terminals in the electronic payment industry/POS Terminal market. The
only terminals on which VAS providers can technically exploit their VAS are
either: (i) directly purchased the Opposite Party No. 1 terminals or (ii)
managed terminals. Since the 2012 draft SDK license agreement allows
licensees to develop VAS on directly purchased terminals (subject to
disclosure) and managed terminals (subject to disclosure and prior
permission), there is, in effect, no restriction on commercial exploitation of
VAS.

4.62 The Opposite Party No. 1 has submitted that it is because of technological
barriers that commercial exploitation of VAS is restricted inter se amongst
different brands of terminals or among different ranges of the same brand of a
POS Terminal. This is because SDKs that are provided for POS Terminals of
one brand cannot be used for POS Terminals of another brand. Further, SDKs
provided for one range of terminals of a brand cannot be used for a different
range of terminals of the same brand.

5. Replies/objections of the Informant

5.1 The Informant has submitted that it agrees with the findings recorded in the
DG report. As per the Informant, data and evidence collected by the DG
during the course of investigation clearly confirms its contentions and
submissions. It is submitted that the findings recorded by the DG in the report
should be upheld by the Commission.

5.2 The Informant has submitted that the DG has confirmed its submission
pertaining to the relevant market, viz, the market for POS Terminals in India
for the purpose of investigation. As per the Informant, the DG has clearly

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examined the factors set out in sections 2(r), 2(s) read with sections 19(6) and
19(7) to determine the overall competitive conditions and existing demand and
supply situation pertaining to POS Terminals in India to determine the
relevant market.
5.3 The Informant has agreed with the DGs assessment and observations with
respect to dominance of the Opposite Party No. 1 and has submitted that the
DG has closely examined the crucial factors contained in section 19(4) of the
Act to establish the Opposite Party No. 1s dominant position in the relevant
market.
5.4 The Informant has agreed with the findings of the DG as regards Verifones
dominant position in the relevant market and abuse of such dominant position
in contravention of section 4(2)(a)(i), 4(2)(b)(i), 4(2)(b)(ii) and 4(2)(e) of the
Act. In absence of any specific findings of the DG in relation to contravention
of section 4(2)(a) (ii) and 4(2)(c), the Informant has submitted that this is a fit
case for determining contraventions under section 4(2)(a)(ii) and 4(2)(c) of the
Act.

5.5 The Informant has submitted rejoinder to the submissions of the Opposite
Party No. 1 in response to the DG investigation report with the contentions as
stated in the subsequent paragraphs.

5.6 As per the Informant, for the purpose of the present case, the relevant market
relates only to countertop POS Terminals and there are no reasonable
alternative payment devices to countertop POS Terminals available to which
merchants could turn in order to defeat a 5% price increase by a hypothetical
monopolist. This is because purchasers of countertop POS Terminals would
not switch to other types of payment systems in sufficient numbers to render
unprofitable a price increase imposed by a hypothetical monopolist in the sale
of countertop POS Terminals.

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5.7 It is submitted that many MPOS Terminals have limited features in

comparison to conventional POS Terminals and these are amplified when
implemented by large department stores. Consumer-grade smart phones and
tablets are not built with strong security features and transactions made
through such devices can leave the customer vulnerable to fraudulent activity.
Processing payments over a volatile wireless network can also prove to be
problematic as well.

5.8 As per the Informant, the PwC report relied upon by the Opposite Party No. 1
appears to calculate market share data on the basis of imports. It is an accepted
position that counter top POS Terminals have an average life of 4-6 years.
Import data showing an increase in imports during the years 2013-2014 would
only show a spurt in procured terminals and not deployed terminals in the
absence of anything to show that there has been a spurt in demand for
countertop POS in the relevant year. It is submitted that the Opposite Party
No. 1 has a whopping market share of 80% even as per information submitted
by the NPCI (National Payments Corporation of India).

5.9 It is submitted that the Opposite Party No. 1 has accepted and admitted market
share of 70% during the period of contravention. Merely because the market
share of the Opposite Party No. 1 has allegedly decreased after the period of
contravention, the same does not dilute the actual commission of
contravention of section 4 of the Act. It is submitted that the DG has rightfully
identified the period of investigation and contravention as between 2009 and
December 2012, a period during which the Opposite Party No. 1 was
indisputably dominant.

5.10 It is contended by the Informant that during the last three financial year
2010-2013, ICICI procured 24,400 terminals of the Opposite Party No. 1 as
against a miniscule 3600 terminals of Ingenico, HDFC procured 1, 23,300
terminals of the Opposite Party No. 1 as against a minisucle 30,200

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terminals of Ingenico, AXIS Bank procured 2, 07,889 terminals of the

Opposite Party No. 1 as against a minisucle 15,990 terminals of Ingenico.

5.11 The Informant has submitted that the DG has correctly calculated the market
share of the Opposite Party No. 1 on installed base of terminals. The DG
has even considered the sales data offered by the Opposite Party No. 1 to
arrive at a conclusion on market shares. The Opposite Party No. 1 nowhere
disputed that using the installed base method to calculate market shares is
erroneous or that this has caused them any prejudice.

5.12 It is submitted that alleged reduction in market shares outside the period of
investigation does not dilute the conduct of an enterprise which has
persistently abused its dominant position during the period of investigation.
Accordingly, to suggest that the Opposite Party No. 1 cannot be dominant in
any market share lends no credence to its submissions.

5.13 As per the Informant, the DG has rightly relied on sales data which has been
submitted by Ingenico and the Opposite Party No. 1 themselves amongst
other sources. It is submitted that the alleged data submitted by the Opposite
Party No. 1 in relation to the POS Terminal acquisitions of various banks
and sales by alleged competitors is not backed by any evidence and ought to
be rejected outright.

5.14 The Informant has submitted that the Opposite Party No. 1 is misleading the
Commission by making comparisons between the agreements related to the
computer software and the mobile application licensing agreements.
Notwithstanding that these devices and applications relate to completely
different markets with different market dynamics, it is submitted that the DG
has correctly drawn out cogent comparisons from within the market.
5.15 It has denied that the POS Terminals market is a buyers market with
customers, especially banks dictating terms and conditions of supply of

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terminals. It is submitted that there is ample evidence in the form of

responses submitted by banks which suggest that banks are dependent on the
Opposite Party No. 1 for after sales service, VAS deployment etc.

5.16 The Informant has submitted that the DG has correctly delineated the
relevant market as the market for POS Terminals in India wherein the
Opposite Party No. 1 is dominant. It is submitted that the Opposite Party No.
1 was and even presently is dominant in the relevant market and has abused
its dominant position in contravention of the Act.
5.17 The Informant denied the objections, analysis and submissions of Verifone
in relation to the Purpose Clause of the 2012 SDK agreement as they are
devoid of logic and reflect yet another attempt on the part of the Opposite
Party No. 1 to mislead the Commission. It is submitted that as a direct result
of the directions passed by the Commission directing the investigation into
the issues in the present matter, Verifone has sought to amend the restrictive
conditions and clauses contained in the 2012 SDK agreement. The contents
of the objections raised by the Opposite Party No. 1 clearly point towards a
belated attempt on its part to avoid liability for the abusive conduct which it
maintained throughout the relevant investigation period.

5.18 The Informant agrees with the findings of DG as regards the Opposite Party
No. 1s dominant position in the relevant market and the abuse of such
dominant position in contravention of section 4(2)(a)(i), 4(2)(b)(i),
4(2)(b)(ii) and 4(2)(e) of the Act flowing from the Purpose Clause of the
2012 SDK agreement. A careful analysis of the terms and conditions
contained in the SDK agreements entered into by the Opposite Party No. 1
and other players with their customers clearly demonstrate that the DGs
findings corroborate the position presented by the Informant before the
Honble Commission as well as the DG.
5.19 It is submitted that the Opposite Party No. 1s assertion that it does not
restrict VAS developer from developing VAS applications on POS
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Terminals managed by such VAS developers is incorrect. It is submitted

that the disclosure and prior permission requirement set out in the 2012 SDK
agreement has to be understood and analyzed in the context of the Opposite
Party No. 1s presence in the VAS market and not simply as a POS vendor.
The Opposite Party No. 1s assertion that the disclosure and prior permission
requirement flows from the warranty obligations that it assumes for POS
Terminals sold by it and that such a disclosure and permission requirement
enables it to ensure the integrity of electronic payments cannot be viewed as
being in the nature of a minimal disclosure because the details required to be
included in Exhibit C of the 2012 SDK agreement are likely to be
confidential business information of the VAS developer.

5.20 The Informant has submitted that the ability of VAS developers to undertake
application development and for that matter the process of VAS
development by inter alia the Informant (for e.g., DCC) has never been
based on any system of receiving prior permission or authorization from the
Opposite Party No. 1. The assertion that the Opposite Party No. 1 permits
development of such VAS application on managed terminals is misplaced
and without logic inasmuch as the VAS development process was and
continues to be independently undertaken by the Informant.
5.21 It is submitted that the DGs findings that the restrictions imposed upon
VAS developers from development of payment applications fall foul of
section 4(2)(a)(i) and section 4(2)(b) are correct. The restrictions imposed
under the 2012 SDK agreement which prohibits the Informant from
developing payment applications should be considered in the context of the
ability of VAS developers such as the Informant to fully exploit existing and
potential business opportunities.

5.22 As set out in the submissions made by the NPCI before the DG during the
course of the investigation that except the Opposite Party No. 1, none of the
other POS Terminal vendors sought to impose any conditions with respect to

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carrying out suitable modifications on the POS Terminals so that they could
run the RuPay application. NPCI further clarified that the Opposite Party
No. 1, with an approximate market share of 80% of deployed POS
Terminals insisted on imposing unreasonable costs for carrying out the
requisite modifications. Not only did this lead to a delay in the development
and roll-out of the RuPay application, but NPCI was also forced to approach
banks and leave it to them to determine the most appropriate manner in
which the application could be developed and deployed on their respective
POS Terminals.
5.23 The Informant also submitted that the Opposite Party No. 1s assertion that
different POS Terminal vendors have adopted different business models to
provide electronic payment solution and the POS Terminal vendors must be
free to do so is fallacious and one-sided in as much as the very freedom (to
develop applications) which the Opposite Party No. 1 seeks for itself is what
it is denying to VAS developers by way of the restriction set out in the 2012
SDK agreement.

5.24 It is submitted that the 2012 SDK agreement contained a blanket restriction
which provided that the licensee shall not use any third party to develop or
assist in developing any software that it develops or attempts to develop
using the licensed software.

5.25 It is submitted that the Opposite Party No. 1 is attempting to mislead the
Commission by painting the disclosure requirement as being minimum and
consistent with existing practice across several industries. It may be noted
that from the perspective of a pure hardware or a pure software entity,
suitable disclosure requirement may be required. However, the disclosure
requirement under the 2012 SDK agreement should be understood in the
context of the Opposite Party No. 1s presence in the downstream VAS
market where it is seeking to expand its domination to financial services

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market and foreclosing the market by restricting the use of its SDK and
imposing unfair terms for access to its SDK.
5.26 As per the Informant, the Opposite Party No. 1s attempt to present
justifications for the disclosure requirements set out in the 2012 SDK
agreement falls flat when examined in the context of its role in the VAS
market where it competes with other VAS developers such as the Informant.
The Opposite Party No. 1s assertion that the disclosure requirement is
essential for the smooth functioning of the POS Terminal and such
disclosure is consistent with standard business practice is misleading and
devoid of logic.

5.27 The Informant denied that it infringed any IP rights of the Opposite Party
No. 1. It is submitted that the termination of the 2009 SCLA by the Opposite
Party No. 1 was not occasioned by any breach of IP rights by the Informant.
Rather, upon receipt of the termination letter in 2009, it was the Informant
who immediately reached out to Verifone and requested for details of any
breach of its IP rights that may have taken place.

5.28 It is submitted that the Opposite Party No. 1 has deliberately concealed the
fact that the 2009 SCLA pertained to a single model of POS Terminal i.e.,
Verix Vx 510 and as a matter of standard business practice, the cost of SDK
license was always embedded within the purchase orders of individual POS
Terminals. It is submitted that the very nature and purpose of source code
and SDK are quite different and as such all negotiations and dealings with
respect to SCLA and SDK license agreement are quite distinct and
independent.

5.29 It is submitted that the issue at hand is the deliberate attempt of the Opposite
Party No. 1 to arm-twist the VAS players into accepting onerous terms and
conditions. As per the Informant, the contention of the Opposite Party No. 1
that its intention behind the 2012 Draft SDK license agreement was to

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introduce an effective IP protection mechanism is completely baseless and

deliberate attempt to mislead the Commission. It is submitted that the DG
has also gone through all relevant internal communications of the Opposite
Party No. 1 and have come to the conclusion that the purpose of such SDK
agreement was to have control over SDK and to earn revenue from the
business of development of application for the Opposite Party No. 1
Terminals.

5.30 It is submitted that the Opposite Party No. 1 desires to extract additional
revenue over and above the price of the POS Terminal (when the cost of the
SDK is already embedded in the price of the POS Terminal) is a clear
indication of imposition of unfair price of goods and services.

6. Issues and Analysis

6.1 The Commission has carefully perused the information, the report of the DG
and the replies/ objections/ submissions/ rejoinders filed by the Informant and
the Opposite Parties and other material available on record. The Commission
also heard the arguments put forth by the learned advocates appearing on the
behalf of the Informant and the Opposite Party No. 1.

6.2 The Commission feels that in order to arrive at a decision in the matter, the
only issue at hand is to determine whether the Opposite Party No. 1 has
infracted any of provisions of section 4 of the Act. However, determination of
the said issue requires delineation of relevant market, assessment of the
position of dominance of the Opposite Party No. 1 in the relevant market and
examination of its alleged abusive conduct in terms of section 4 of the Act in
case the Opposite Party No. 1 is found to be in a dominant position in the
relevant market. Each of the above sub-issues is dealt with separately in the
subsequent paragraphs.

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Determination of Relevant Market

6.3 For examination of the matter under the provisions of section 4 of the Act, the
Commission is required to delineate the relevant market in terms of section
2(r) of the Act. The relevant market is to be determined with reference to the
relevant product market as defined under the provisions of section 2(t) of the
Act and the relevant geographic market as defined under the provisions of
section 2(s) of the Act. As per the Act, relevant product market means a
market comprising all those products or services which are regarded as
interchangeable or substitutable by the consumer, by reason of characteristics
of the products or services, their prices and intended use and the relevant
geographic market means a market comprising the area in which the
conditions of competition for supply of goods or provision of services or
demand of goods or services are distinctly homogenous and can be
distinguished from the conditions prevailing in the neighboring areas.

6.4 However, the Commission while determining the relevant product market has
to give due regard to all or any of the factors such as physical characteristics
or end-use, price, consumer preferences, exclusion of in-house production,
existence of specialized producers and classification of industrial products as
provided under section 19(7) of the Act; and while determining the relevant
geographic market has to give due regard to all or any of the factors such as
regulatory

trade

barriers,

local

specification

requirements,

national

procurement policies, adequate distribution facilities, transport costs,

language, consumer preferences and need for secure or regular supplies or
rapid after-sales services as provided under section 19(6) of the Act.
6.5 The DG has considered the relevant product market as the market for POS
Terminals. While delineating the relevant market the DG distinguished the
upstream POS Terminals (along with upgrading tools such as Kernel,
Operating System, Source Code, SDK, etc.) market from the downstream
market of terminal management service, VAS, repairs and maintenance. As

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per the DG report, POS Terminal is a distinct product and new technologies
such as Easytap, MSwipe etc., cannot be considered as a substitute of POS
Terminals and there are no reasonable alternative devices available in the
market to which the consumers i.e., banks, etc. can switch over. The territory
of India is considered as the relevant geographic market by the DG as POS
Terminals can be marketed throughout India with almost similar conditions.
Accordingly, the market for POS Terminals in India is considered as the
relevant market in the DG report.

6.6 However, the Opposite Party No. 1, not agreeing with the definition of
relevant product market of DG, has stated that the DG has not considered the
substitutes of POS Terminal available in the market and the universe of interconnected electronic payment systems that act as substitutes to POS
Terminals. As per the Opposite Party No. 1, since the electronic payment
industry is highly technology driven, the relevant product market definition
must be broad enough to effectively include new and innovative products
which are being developed and constrain the sales of POS Terminals. It is
contended that MPOS devices such as Ezetaps mobile solutions card reader,
MSwipes USB/ dongle MPOS, and MobiSwipe are used as substitute of POS
Terminals by the merchants as an MPOS Terminal requires less upfront
investment and maintenance expenditure compared to a POS Terminal. As per
the Opposite Party No. 1, digital and mobile wallets, prepaid instruments,
online payment etc. are also substitutable with POS Terminals. In regards to
the relevant geographic market, the Opposite Party No. 1 agrees with the DG
report that it should be the territory of India however, it is suggested to include
the imports of electronic payment devices including POS Terminals into the
country in the relevant geographic market. Thus, the Opposite Party No. 1 has
contended that the market for electronic payment devices in India is the
appropriate relevant market in this case.

6.7 Contrary to the contention of the Opposite Party No. 1 as regards to relevant
product market definition, the Informant has stated that the DG has correctly

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defined the relevant market as the market for POS Terminals in India. The
Informant agrees with the DG that POS Terminal is not interchangeable with
MPOS such as Ezetaps mobile solutions card reader, MSwipes USB/dongle
MPOS and MobiSwipe. It is contended that in terms of features POS
Terminals are different from MPOS Terminals; MPOS Terminals have limited
features compared to POS Terminals. On digital and mobile wallets, prepaid
instruments, online payment, etc. the Informant has contended that
transactions made through such devices can leave the customer vulnerable to
fraudulent activity because of lack of security measures and processing
payments over a volatile wireless network can also prove to be problematic.
On the aspect of the relevant geographic market, the Informant agrees with the
DG report that the territory of India is the relevant market in the instant case.

6.8 The Commission perused the DG report, submissions of the Opposite Party
No. 1 and the Informant in regards to the relevant market definition. Since the
dispute in question relates to the abusive conduct of the Opposite Party No. 1
in supply of POS Terminals to the Informant, the relevant product in question
is POS Terminals. However, it is to be seen whether other similar products
available in the market can be considered as a substitute of POS Terminals by
the end users such as banks.

6.9 The Commission observes that POS Terminals can operate either on
standalone basis known as counter top terminals or need to be connected to
an electronic cash register or similar device as part of an integrated POS
system known as multi-lane terminals. From the end use, features,
functionality, price, etc. point of view counter top terminal and multi-lane
terminal are different product and they cannot substitute to each other. There
are different set of end consumers for the said two products. Usually small
retailers used the counter top terminal whereas multi-lane machines are part of
a larger integrated point sale system used by big retail organization. Further,
from the functionality point of view counter top terminals are connected to
payment networks by standard telephone lines or by wireless internet protocol

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technology whereas multi-lane terminals are connected to electronic cash

register or similar devices as a part of integrated POS system.

6.10 Further, it is to be determined whether POS Terminals along with its core
applications and subsequent services related to terminal management, VAS,
repairs and maintenance, etc. are to be considered as the same relevant
product market and whether other related devices available in the market can
be considered as substitute of POS Terminals by the end users.

6.11 It may be noted that the DG has segregated the upstream market for POS
Terminals which also includes core applications such as Kernel, Operating
System, Source Code and SDK and the downstream market like TPP
(terminal management services), VAS (application development services)
and after sales services (repairs and maintenance), etc. The Commission is of
the same view as that of the DG in this regard that upstream market for POS
Terminals as stated above is different from the downstream market of VAS
and after sales services. It is so because POS Terminals require services such
as terminal management, application development, repairs and maintenance,
etc. in order to meet requirements of the customers such as each bank, etc.
for which many specialized firms such as the Informant are engaged. These
services are required throughout the life of POS Terminals on an ongoing
basis. It may be noted that the nature of both the products are different as
well as the players in both the markets are different. The Opposite Party No.
1 is a player in the upstream market whereas the Informant operates in the
downstream market.

6.12 The Opposite Party No. 1 has contended that MPOS devices such as
Ezetaps mobile solutions card reader, MSwipes USB/dongle MPOS and
MobiSwipe as well as digital and mobile wallets, prepaid instruments, online
payment, etc. and POS Terminal are part of the same relevant market
because all such devices process electronic payment transactions and for the
end users POS Terminal and MPOS devices are substitutable. However, the

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DG has reported that MPOS devices and online payments, etc. cannot be
considered as substitute of POS Terminals. The Commission agrees with DG
that POS Terminals market is a separate relevant market and same cannot be
considered as substitute of MPOS devices because of absence of demand
side substitutability between the two among the end users. Also, MPOS
Terminals have limited features compared to POS Terminals. The
Commission is also of the view that digital and mobile wallets, prepaid
instruments, online payment etc., as contended by the Opposite Party No. 1,
cannot be considered as the substitute of POS Terminals because of
difference in product characteristics, end use and consumer preferences.
Hence, the Commission, in consonance with the DG report, determines the
relevant product market as the market for POS Terminals.

6.13 On the relevant geographic market, DG has reported that the territory as
India is to be considered as the relevant geographic market in this case
because the condition of competition in POS Terminals market throughout
India is similar. The Opposite Party No. 1 and the Informant have accepted
the relevant geographic definition provided by the DG however, the
Opposite Party No. 1 contended that the imported POS Terminals in the
relevant geographic market must be included. The Commission concurs with
the DG in this regard that the territory of India is the relevant geographic
market to be considered in this matter. It is so because the conditions of
competition for POS Terminals throughout India are homogeneous.
Accordingly, the market for POS Terminals in India is considered as the
relevant market in this case.

Determination of the position of dominance of the Opposite Party No. 1

6.14 Let us determine whether the Opposite Party No. 1 is a dominant entity or
not in the relevant market stated supra. As per the Act, dominant position
means a position of strength, enjoyed by an enterprise in the relevant market
to: (a) operate independently of competitive forces or (b) affect its

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competitors or consumers or the relevant market in its favor. To determine

whether the Opposite Party No. 1 is in dominant position in the relevant
market or not, the Commission is required to give due regard to all or any of
the factors enumerated under section 19(4) of the Act. Such factors include
market share of the Opposite Party No. 1; its size and resources; size and
importance of the competitors of the Opposite Party No. 1; economic power
of the Opposite Party No. 1 including commercial advantages over its
competitors; vertical integration of the Opposite Party No. 1 or sale or
service network of the Opposite Party No. 1; dependence of consumers on
the Opposite Party No. 1; whether monopoly or dominant position acquired
by the Opposite Party No. 1 as a result of any statute or by virtue of being a
Government company or a public sector undertaking or otherwise; entry
barriers including barriers such as regulatory barriers, financial risk, high
capital cost of entry, marketing entry barriers, technical entry barriers,
economies of scale, high cost of substitutable goods or service for
consumers; countervailing buying power; market structure and size of
market; social obligations and social costs; relative advantage, by way of
contribution to the economic development, by the enterprise enjoying a
dominant position; and any other factors.

6.15 The DG has considered the above factors and concluded that the Opposite
Party No. 1 is a dominant enterprise in the relevant market of POS
Terminals in India. The DG has reported that during the period of
investigation i.e., during 2009-10 to the date of filing of information in
07.09.2012, there were mainly two players in the relevant market, the
Opposite Party No. 1 and Ingenico. In terms of the number sale of POS
Terminals, the market share of the Opposite Party No. 1 is 57% compared to
43% of its nearest competitors. It is observed the DG report that in terms of
size, resources and economic strength the Opposite Party No. 1 is in
advantageous position compared to its competitors in the relevant market.
Further, the DG has stated that because of market strength enjoyed by the
Opposite Party No. 1, the consumers are dependent on it. It is also reported

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that there exist entry barriers in the relevant market and vertical integration
of upstream POS Terminal market with the downstream service provider
market enables the Opposite Party No. 1 to act independent of its
competitors.

6.16 The Opposite Party No. 1 has submitted that the DG has assessed its
dominant position in the relevant market which is not correct rather, the
market for electronic payment solutions in India should be considered as the
relevant market for the purpose of assessing its dominance. It is submitted
that in the electronic payment solutions market the Opposite Party No. 1 is
not in a dominant position. As per Opposite Party No. 1, even in the POS
Terminals market it is not a dominant player as its competitor Ingenico holds
more market share (54%) compared to the Opposite Party No. 1 (43%)
which is further declining. The Opposite Party No. 1 has stated that its
revenues and profits have been declining. Its profit was Rs. 6.9 crore in
financial year 2011-12 which reduced to Rs. 65.75 lakhs in financial year
2012-13. Similarly, its revenue was reduced to Rs. 96.57 crore in the year
2012-13 from Rs. 118.15 crore in the financial year 2011-12. It is submitted
that Opposite Party No. 1s market share also reduced from 57% to 43% in
the past 5 years. It is submitted that large multi-national corporations such as
Ingenico and PAX, as well as local players in India such as Linkwell or
Visiontek and Advanced Micronic Devices Ltd. (AMDL) are the
competitors of the Opposite Party No. 1 in the POS Terminals market in
India. The Opposite Party No. 1 has stated that Ingenico is the worlds
largest supplier of POS Terminals and it holds the no. 1 position in Asia.
Further, in April 2014, Ingenico was adjudged the highest ranking POS
Terminal vendor globally by ABI Researchs POS Terminal Vendor
Competitive Assessment.

6.17 Citing the PwC Report, the Opposite Party No. 1 has stated that, with market
share of 54% in the POS Terminal market, Ingenico is the largest player in
India. It is stated that Ingenico has deployed approximately 300,000 POS

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Terminals in India and claimed to be selling 20,000 POS Terminals every

month. As per the Opposite Party No. 1, Ingenico sales in India have
increased from Rs. 81.83 million in the financial year 2009 to Rs. 799.93
million in the financial year 2013. It is submitted that given the global
presence, size and importance of the competitors of the Opposite Party No. 1
including potential competitors such as the Informant, the Opposite Party
No. 1 cannot be said to hold a dominant position in the POS Terminal
market in India.
6.18 The Informant on the other hand endorsed the DGs conclusion in regards to
the position of dominance of the Opposite Party No. 1 in the relevant market
and stated that the DG appropriately analysed the factors of section 19(4) of
the Act to determine the position of dominance of the Opposite Party No. 1
in the POS Terminals market in India. The Informant endorsed the DG
findings that installed base of POS Terminals is the appropriate method of
calculation of market share. Relying on the NCPI submission, the Informant
stated that with 80% market share the Opposite Party No. 1 is in a dominant
position. The Informant has contended that the Opposite Party No. 1 has
accepted its market share as 70% during the period of contravention i.e.,
during 2009-10 to the date of filing of information in 07.09.2012. With such
huge market share and other advantageous position of the Opposite Party
No. 1 as analysed by the DG, the Informant stated that the Opposite Party
No. 1 is in dominant position in POS Terminals market in India.

6.19 Having considered the contention of the Informant and the Opposite Party
No. 1 and the findings of the DG report in this regard, the Commission
concurs with the findings of the DG that the Opposite Party No. 1 is in a
dominant position in the relevant market of POS Terminals in India. Based
on the RBI data it is reported by the DG that during the period of
investigation i.e., 2009-10 to the date of filing of information in 2012, banks
procured about 5.8 lakhs of POS Terminals which belong to the Opposite
Party No. 1 and its acquired companies like Gemalto and procured only

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50,000 POS Terminals from Ingenico. Accordingly, the market share of the
Opposite Party No. 1 in terms of sale of POS Terminals to banks is
estimated around 70% vis--vis 30% of Ingenico. Further, it is revealed from
the DG report that in terms of size, resources and economic power the
Opposite Party No. 1 is in an advantageous position compared to Ingenico,
its nearest competitor. It is observed that presence of the Opposite Party No.
1 across the country, its capabilities in terms of hardware and software and
the number of machines presently in use makes the consumers dependant on
it. The Commission also notes that in the POS Terminal market there exist
vertical integration of upstream hardware market with the downstream
service provision market which enables the enterprise to act independent of
others. The Commission also takes note of the submissions of NCPI wherein
it stated that the Opposite Party No. 1 has substantial (80%) market share.
Thus, based on the above, the Commission is of the opinion that there is no
reason to deviate from the conclusion drawn by the DG in regards to
position of dominance of the Opposite Party No. 1 in the relevant market.
The contention of the Opposite Party No. 1 in this regard is devoid of merit
and is rejected. Thus, the Commission holds that the Opposite Party No. 1 is
in dominant position in the market of POS Terminals in India.

Examination of the alleged abusive conduct of the Opposite Party No. 1

6.20 Having determined that the Opposite Party No. 1 is in a dominant position in
the relevant market of POS Terminals in India, now the Commission
proceeds to examine the alleged abusive conduct of the Opposite Party No. 1
in terms of the provisions of section 4 of the Act.

6.21 Section 4(1) states that no enterprise shall abuse its dominant position and
section 4(2), inter alia, states that there shall be an abuse of dominant
position under sub-section (1), if an enterprise: (a) directly or indirectly,
imposes unfair or discriminatory- (i) condition in purchase or sale of goods
or service; or (ii) price in purchase or sale (including predatory price) of

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goods or service; or (b) limits or restricts- (i) production of goods or

provision of services or market thereof; or (ii) technical or scientific
development relating to goods or services to the prejudice of consumers; or
(c) indulges in practice or practices resulting in denial of market access in
any manner; or (d) makes conclusion of contracts subject to acceptance by
other parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the subject of such
contracts; or (e) uses its dominant position in one relevant market to enter
into, or protect, other relevant market.

6.22 The Informant has alleged that the Opposite Party No. 1 has abused its
dominant position through restrictive and unfair conditions in the draft SDK
agreement in contravention of the provisions of sections 4(2)(a)(i) &(ii),
4(2)(b)(i) & (ii), 4(2)(c) and 4 (2)(e) of the Act.

6.23 The DG has examined the conduct of the Opposite Party No. 1 vis-a-vis the
allegations posed by the Informant and found that the Opposite Party No. 1,
through the unfair and restrictive clauses in the 2012 draft SDK agreement,
has imposed unfair and discriminatory conditions on the Informant in
contravention of section 4(2)(a)(i) of the Act, has limited the provisions of
professional services thereby amounting to violation of section 4(2)(b)(i) of
the Act. Further, the DG has found that due to the abusive conduct of the
Opposite Party No. 1, the technical and scientific development in the
downstream market is likely to be adversely affected leading to infringement
of section 4(2)(b)(ii) of the Act. The DG also found that the Opposite Party
No. 1 used its dominance in the upstream market of POS Terminals to
enhance its presence in the downstream relevant market amounting to
violation of section 4(2)(e) of the Act.

6.24 However, the Opposite Party No. 1 has opposed the above findings of the
DG on the grounds, inter alia, that the terms and conditions of 2012 draft
SDK license agreement are less stringent compared to SDK license

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agreements in the smart phone industry and it is a standard business practice;

it does not unreasonably restrict the development on VAS on managed
Terminals; minimal disclosure under Exhibit C of the draft SDK
agreement cannot amount to an abuse of dominance and limited disclosure
requirement is not a restriction; its business model in India is not comparable
to

SDK

licensing

arrangements

in

other

parts

of

the

world;

modification/developments cannot be made to the core functionality of

devices as in the SDK license agreements for smart phones; Ingenicos SDK
license agreement and its 2012 draft SDK license agreement operate on
completely different business models hence are not comparable; and the
SDK, the underlying software, the source code, etc., are its intellectual
property rights, etc.

6.25 The Informant on the contrary contended, inter alia, that the some terms and
conditions of the SDK agreements are abusive in contravention of the
provisions of section 4 the Act, as revealed from the DG investigation. As
per the Informant, the condition relating to minimum disclosure and prior
permission requirement under Purpose Clause likely to disclose
confidential business information of the VAS developer like it and blanket
restriction imposed under the 2012 SDK agreement prohibits it from
developing payment applications. As per the Informant, under the veil of
disclosure requirement under the 2012 SDK agreement the Opposite Party
No. 1 is foreclosing the market for VAS services.

6.26 The Commission has perused the findings of DG and the rival submissions
in regards to the alleged abusive conduct of the Opposite Party No. 1. It is
observed that the core issue in this case relates to supply of SDK to VAS
providers for development of software on the POS Terminals. From the DG
investigation it is revealed that no other POS Terminal vendor in India or
outside India has been found to be imposing any restrictions on development
of applications or other restrictive clauses similar to SDK agreement of the
Opposite Party No. 1. The intent of the Opposite Party No. 1 seems to be to

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exploit the VAS players by either restricting them or sharing the revenue
with them because VAS market is highly profitable and has recurring
benefits. Being in a dominant position in the relevant market, the Opposite
Party No. 1 is strengthening its position in the downstream market by
imposing restrictive clause in the SDK agreement and by refusing the VAS
providers to allow access to development tools like SDK on reasonable
terms and conditions.

6.27 The Commission also perused the clauses of SDK license agreement vis-avis the provisions of section 4(2) of the Act. It is observed that through the
Purpose Clause which provides that there is a restriction on the licensee to
use any third party for development of application, the Opposite Party No. 1
imposes restrictions that development of VAS to be used only on the POS
Terminals that licensee has purchased directly from the Opposite Party No.
1. Even though the Opposite Party No. 1 contended that it does not restrict
the VAS providers but the clauses of SDK agreement do not reflect this
version. The Commission observes that the purpose clause relating to
allowing licensee to develop the value added software and using the same on
only those of the licensors products that licensee has purchased directly
from the licensor mentioned in Exhibit A of the SDK agreement is clearly
restrictive and anti-competitive.
6.28 Further, the license restriction clause i.e., not use the licensed software to
develop any payment software that directly or indirectly interacts with any
acquiring bank seems to be unfair and restrictive. The SDK license
agreement of the Opposite Party No. 1 does not allow the third party to write
a payment application in India which is contrary to the practice followed by
the Opposite Party No. 1 elsewhere across the globe as is evidenced from the
statement made in its website i.e., Verifone offers a selection of developer
tools and drivers to help programmers design and develop efficient,
professional payment applications that complement our payment systems.
Further, by restricting the development of payment softwares for any

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payment association and non-disclosing the said clause to the large buyers
(Banks) in India who would require customized payment softwares to run on
the POS Terminals bought by them, the Opposite Party No. 1 has restricted
the availability of substitutable payment solutions thereby restricting the
choice for the buyers. Thus, the restrictions imposed by the Opposite Party
No. 1 on development of payment software by the third parties are anticompetitive.

6.29 The Commission observes that the restriction placed on the Informant not to
use the licensed software to develop any payment software that directly or
indirectly interacts with any acquiring bank appears to be unfair as it limits/
controls the provision of VAS services and limits/ restricts the technical and
scientific development of VAS services used in POS Terminals in India. It is
pertinent to note that the Informant being the lawful owner of the proprietary
rights in the VAS is neither allowed to exploit it for its own purpose nor for
its customers. Further, the above mentioned restrictive clause acts as a
disincentive for the Informant to continue investing in development and
innovation of VAS services as its business would be adversely affected by
such restrictive clauses.

6.30 It is further observed that the license restriction clause relating to disclosure
mentioned in the SDK license agreement imposes three different disclosure
requirements namely; a) disclose to licensor from time to time the activities
relating to licensed software; b) what value added software it has created;
and c) what it intends to create using the licensed software. It may be noted
that the Opposite Party No. 1 is a POS Terminal manufacturer and is also
engaged in the development of VAS applications. By way of this restriction,
the Opposite Party No. 1 was trying to get access to confidential commercial
information from the VAS providers and to exploit the lucrative VAS
market. The requirement of prior disclosure to the Opposite Party No. 1
about the VAS developed by the Informant amounts to imposition of unfair
condition on the Informant and it limits the provision of VAS services.

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Further, by seeking information such as business secrets/ commercially

sensitive information on the VAS services which the Informant intends to
develop is likely to prejudice the business activities of the Informant as the
Opposite Party No. 1 is developing into a major competitor for the Informant
in the VAS/TPP market in India. Such restriction restricts technical/
scientific development relating to VAS services for POS Terminals in India.
Since the Opposite Party No. 1 has a larger presence in terms of POS
Terminals managed by banks in India and is itself a manufacturer of POS
Terminals, its conduct with respect to seeking disclosure of sensitive
business information from its customers in the downstream market is unfair
as it enables the Opposite Party No. 1 to protect the downstream market of
VAS services.

6.31 Based on the above analysis the Commission comes to the conclusion that
the conduct of the Opposite Party No. 1 is abusive in terms of section 4 of
the Act. The Commission is of the considered opinion that through the SDK
agreement the Opposite Party No. 1 has imposed unfair conditions on
VAS/TPP service providers which is in contravention of section 4(2)(a)(i) of
the Act; restricted the provision of VAS services as well as limited/restricted
the technical and scientific development of VAS services used in POS
Terminals market in India which is in contravention of 4(2)(b)(i) and (ii) of
the Act. Also, the conduct of the Opposite Party No. 1 with respect to
seeking disclosure of sensitive business information from its customers in
the downstream market in order to enable to enter into the downstream
market of VAS services is in contravention of the provisions of section
4(2)(e) of the Act.

6.32 In view of the above findings, the Commission directs the Opposite Party
No. 1 to cease and desist from indulging in the activities which have been
found to be in contravention of the provisions of section 4 of the Act.
Furthermore, in terms of the provisions contained in section 27(b) of the
Act, the Commission may impose such penalty upon the contravening

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parties, as it may deem fit which shall be not more than ten per cent of the
average of the turnover for the last three preceding financial years, upon
each of such person or enterprises which are parties to such agreements or
abuse. It may be noted that the Opposite Party No. 1 has not brought to the
notice of the Commission any mitigating factor for the above enumerated
contravention during the course of hearing and have only preferred to justify
their conduct on various grounds.

6.33 On the aspect of penalty under section 27 of the Act, the Commission is of
the view that the said anti-competitive conducts require to be penalized to
cause deterrence in future among the erring entities engaged in such
activities. Accordingly, it is required that the degree of punishment is scaled
to the severity of the violation. No mitigating factor is shown by the
Opposite Party No. 1 and none is borne out from the records.

6.34 Having regard to the above, the Commission decides to impose a penalty on
the Opposite Party No. 1 at the rate of 5% of its turnover based on the
financial statements filed by the Opposite Party No. 1. The amount of
penalty on the Opposite Party No. 1 is calculated as under:

S.
No

Name of the
Party

M/s VeriFone
India
Sales
Pvt. Ltd.

Turnover
/receipts
during
the year
ended on
31.03.201
1 (Rs.)
54,31,23,
374

Turnover/r
eceipts
during the
year ended
on
31.03.2012
(Rs.)
118,15,65,9
84

Turnover
/receipts
during
the year
ended on
31.03.201
3 (Rs.)
96,57,24,
796

Average
Turnover
/receipts
(Rs. in
crore)

5%
of
Average
turnover
(Rs.)

89,68,04,
718

4,48,40,2
36

6.35 The Opposite Party No. 1 is directed to deposit the amount of penalty within
60 days of the receipt of this order.

6.36 It is noted from the DG investigation that the DG has identified persons who
were in charge and responsible to the Opposite Party No. 1 for the conduct
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of its business during the time when the alleged act of contravention was
committed for the purpose of determining liability under section 48 of the
Act. So far as the individual liability of the officials of the Opposite Party
No. 1 in terms of the provisions of section 48 of the Act is concerned, the
Commission, on consideration of the investigation report, forwarded the
copies of the DG report to the parties including the identified officials for
filing their respective reply/ objections. The Commission also directed them
to file their income statements/ Income Tax Returns of the last 3 financial
years. However, the Commission decides to pass an order separately in this
regard after the proceedings are completed in respect of the persons so
identified.

6.37 Secretary is directed to send a copy of this order to the concerned parties for
compliance immediately.
Sd/(Ashok Chawla)
Chairperson
Sd/(S. L. Bunker)
Member

Sd/(Sudhir Mital)
Member
Sd/(Augustine Peter)
Member

New Delhi
Dated: 10/04/2015

C. No. 56 of 2012

Sd/(U. C. Nahta)
Member

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